Claredi Corporation v. SeeBeyond Technology Corporation

MEMORANDUM in Opposition re MOTION to Dismiss Case and for Partial Summary Judgment and Request for Additional Time to Supplement Opposition

E.D. Mo.June 10, 2005

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MISSOURI EASTERN DIYISION CLAREDI CORPORATION Plaintiff, v. SEEBEYOND TECHNOLOGY CORPORATION AND EDIFECS Defendants, § § § § § § § § § § CASE NO. 4-04CY01304RWS PLAINTIFF'S MEMORANDUM IN OPPOSITON TO DEFENDANT'S MOTION TO DISMISS AND FOR PARTIAL SUMMARY JUDGEMENT AND REQUEST FOR ADDITIONAL TIME TO SUPPLEMENT OPPOSITION Pursuant to FED. RULECIv. PRO. 12(b), and 56, and LOCALRULE4.01, Plaintiff, Claredi Corporation fiJes this memorandum in opposition to the Motion of Defendant SeeBeyond Technology to Dismiss First Amended Complaint and for Summary Judgment and request for additional time to supplement opposition. In opposition to the reliefrequested, Plaintiff states as follows: lo Procedural Backg:round 1. Plaintiff filed this suit on September 24, 2004. On November 30, 2004 Defendant SeeBeyond answered the lawsuit. The amended complaint includes claims for (1) breach of contract, (2) quantum meruit, (3) trademark infringement, (4) conversion, (5) misappropriation of trade secrets, (6) unfair competition, (7) intentional interference with prospective advantage, (8) intentional interference with contract, (9) inducing breach of contract, and (10) conspiracy. On May 11, 2005 Defendant SeeBeyond filed a motion to dismiss the first amended complaint and for partial summary judgment. In that PLAINTIFF'S MEMORANDUM IN OPPOSITON TO DEFENDANT'S MOTION TO DlSMISS AND FOR PARTIAL SUMMARY JUDGEMENT PAGE 1 OF 13 Case: 4:04-cv-01304-RWS Doc. #: 85 Filed: 06/10/05 Page: 1 of 13 PageID #: 619 motion, Defendant requests the Court dismiss claim numbers (2), (4), (6), (7), (8), (9), and (10) for failure to state a claim upon which relief can be granted under California law. Further, Defendant requests the Court to determine as a matter oflaw that Plaintiffs damages are limited to $14,400.00. Plaintiff is simultaneously filing a Rule 56(f) declaration with this Memorandum in Opposition requesting additional time to conduct discovery and file supplementary materials. 11. Ar2ument and Authorities A. MOTION TO DISMISS 3. Defendant SeeBeyond requests that the Court dismiss claims two, four, six, seven, eight, nine and ten of Plaintiff s amended complaint on the grounds that they fail to state a cause of action under California law. Respectively, those claims are for quantum meruit, conversion, unfair competition, intentional interference with prospective advantage, intentional interference with contract, inducing breach of contract, and conspiracy. It is Plaintiff s position that the referenced claims state causes of action under California law. Plaintiffhas complied with the notice requirements ofthe Federal Rules of Civil Procedure in pleading its claims. See, FED. RULECIv. PRO. 8; Ethex Corp. V. First Horizon Pharm. Corp., 228 F. Supp. 2d 1048, 1050 (E.D. Mo. 2002). California pleading requirements are not deterrninative. See, Mazda Motor Corp. v. Waldo, 75 F.3d 1252, 1258 (8th Cir. 1996). In any event, if an issue exists as to the specificity of its claims, Plaintiff should be afforded an opportunity to replead. Becker vs. Univ. 01Neb. at Omaha, 191 F.3d 904, 908 (8th Cir. 1999). Further, it is Plaintiffs position that Defendant's motion to dismiss in fact violates the spirit ofRule 7(c), which provides that PLAINTIFF'S MEMORANDUM IN OPPOSITON TO DEFENDANT'S MOTION TO DISMISS AND FOR PARTIAL SUMMARY JUDGEMENT PACE 2 OF 13 Case: 4:04-cv-01304-RWS Doc. #: 85 Filed: 06/10/05 Page: 2 of 13 PageID #: 620 "Demurrers, pleas, and exceptions lor insufficiency 01 a pleading shall not be used." FED. RULECIv. PRO. 7(c). Defendant's specific requests for dismissal can be addressed as follows: Claim Two: Quantum Meruit Claredi pleads in the alternative and seeks to recover benefits received by Defendant 4. Defendant asserts that P1aintiff s claim for quantum meruit shou1d be dismissed for two reasons. These reasons are (1) that quantum meruit does not supply an alternative method to recover for breach of an express contract, and (2) that P1aintiff seeks to recover for the 10ss of benefit to P1aintiff. In both instances, Defendant overlooks the obvious. First, the California cases cited by Defendant do not preclude a p1aintiff p1eading quantum meruit in the alternative to breach of contract, they mere1y preclude a p1aintiff from recovering under quantum meruit where a valid express contract provides for agreed compensation. FED. RULE Crv. PRO. 8(a) specifically provides that "Reliel in the alternative or 01several difIerent types may be demanded." The ru1e further provides in subparagraph 8(e)(2) that HAparty may also state as many separate claims or delenses as the party has regardless 01 consistency and whether based on legal, equitable or maritime grounds." Case 1aw specifically provides that "in light 01 the liberal pleading policy embodied in Rule (8)(e)(2) ...a pleading should not be construed as an admission against another alternative or inconsistent pleading in the same case." McCladen v. Cal. Library Assoc. 955 F.2d 1214, 1219 (9th Cir. 1992) quoting Molsbergen v. Us., 757 F.2d 1016, 1019 (9th Cir. 1985). Further, quantum meruit and breach of contract claims are routinely p1ead in the alternative, even in California. See Rader Co. v. Stone, 178 CaL App. 3d 10 (1986). Second, Defendant's claim that P1aintiff, by its quantum meruit PLAINTIFF'S MEMORANDUM IN OPPOSITON TO DEFENDANT'S MOTION TO DISMISS AND FOR PARTIAL SUMMARY JUDGEMENT PAGE 3 OF 13 Case: 4:04-cv-01304-RWS Doc. #: 85 Filed: 06/10/05 Page: 3 of 13 PageID #: 621 c1aim, seeks to recover the loss of benefit to Plaintiff is unfounded. Defendant wholly ignores the specific language contained at page 11 to the amended complaint in paragraph 47, which provides that: "SeeBeyond has benefited from the goods and services provided by Claredi, " and paragraph 50 which provides that "SeeBeyond has yet to fully compensa te Claredi for the goods and service it received." In short, Plaintiffs c1aim for quantum meruit recovery is plead in the alternative and does not seek to recover the loss of benefit to Plaintiff. Plaintiff s c1aim for quantum meruit recovery states a cause of action under California law. Claim Four: Conversion Claredi alleges ownership interest 5. Defendant asserts that Plaintiffs c1aim for conversion should be dismissed for the reason that Plaintiff failed to allege an ownership interest. Defendant again chooses to ignore specific language contained in the amended complaint at page 5 paragraph 16, that provides: This Grandfather System was to be made available to SeeBeyond's customers on a limited, temporary basis ... (emphasis added) and at page 12 paragraph 55 that provides: SeeBeyond con verted Claredi systems to its own use, by modifying those systems to make them fully functional, and allowing SeeBeyond customers to use the systems to conduct testing operations that were not authorized. (emphasis added) In short, Plaintiff s c1aim for conversion alleges an ownership interest with sufficient specificity to meet the notice pleading requirement of the FED. RULE CIV. PRO. 8(a) and to state a cause of action under California law. PLAlNTIFF'S MEMORANDUM IN OPPOSITON TO DEFENDANT'S MOTION TO DISMISS AND FOR PARTIAL SUMMARY JUDGEMENT PAGE 4 OF 13 Case: 4:04-cv-01304-RWS Doc. #: 85 Filed: 06/10/05 Page: 4 of 13 PageID #: 622 Claim Six: Unfair Practices Act Claredi aUeges violatioll ofthe act 6. Defendant asserts that P1aintiffs c1aim for vio1ation of the Unfair Practices Act should be dismissed because the comp1aint does not allege SeeBeyond committed any act in vio1ation of the Act. Again, Defendant overlooks the obvious. P1aintiff in its amended comp1aint at page 7, paragraph 25 specifically alleges that: SeeBeyond has also directly interfered with Claredi 's outside sales arrangements, representing to several customers that SeeBeyond is no longer working with Claredi and in the future SeeBeyond is not going to be using either the modified Grandfather System or the Integrated Product for HIPAA transaction compliance testing, but that SeeBeyond will be delivering its new superior HIPAA transaction compliance testing program to its current customers free of charge as part of its larger system suite. Additionally, paragraph 26 specifically alleges that in the summer of 2004 C1aredi 10st at 1east five Faciledi sales because of SeeBeyond requesting customers not buy Faci1edi and offering free RIP AA transaction comp1iance testing software. Further, P1aintiff, in its amended comp1aint a page 9 paragraph 36, specifically alleges that at meetings he1d in California SeeBeyond and Edifecs conspired with each other to engage in unfair competition by converting C1aredi's systems and giving away RIP AA systems for the purpose of putting C1aredi out of business. Section 17043 of California' s Unfair Practices Act makes it un1awfu1 for any person engaged in business in the State of California to sell any artic1e or product at less than the cost thereof to such vendor, or give away any article or product for the purpose of injuring competitors or destroying competition. Section 17044 makes it un1awful of any person engaged in business within the State of California to seU or use any artic1e or product as a "loss 1eader" as defined in Section 17030. Section 17030 defines a "loss 1eader" as: PLAlNTIFF'S MEMORANDUM IN OPPOSITON TO DEFENDANT'S MOTION TO DISMISS AND FOR PARTIAL SUMMARY JUDGEMENT PAGE 5 OF 13 Case: 4:04-cv-01304-RWS Doc. #: 85 Filed: 06/10/05 Page: 5 of 13 PageID #: 623 Any article or produet sold at less than eost: (a) Where the purpose is to induce, promote, or eneourage the purehase of other merehandise; or (b) Where the effeet is a tendeney or eapacity to mislead or deeeive purehasers or prospeetive purehasers; or (e) Where the effeet is to divert trade from or otherwise injure eompetitors. Section 17024 defines article or product to include "any article, product, commodity, thíng of value, service or output of a service trade." Section 17048 makes it "unlawful for any manufaeturer, wholesaler, distributor, jobber, eontraetor, broker, retailer, or other vendor, or any agent of any sueh person, jointly to participate or eollude with any other sueh person in violation ofthis ehapter." Section 17071 ofthe Act provides that: In al! aetions brought under this ehapter proof of one or more aets of selling or giving away any article or produet below eost or at diseriminatory priees, together with proof of the injurious effeet of sueh aets, is presumptive evidenee of the purpose or intent to injure eompetitors or destroy eompetition. In short, Plaintiff has specifically alleged that Defendant SeeBeyond has committed wrongful acts under the California Unfair Practices Act, and that those acts had an injurious effect on Plaintiff. Claim Seven: Intentional Interference with Prospective Economic Advantage Claredi alleges existel1ce 01ecol1omic relatiol1ship 7. Defendant asserts that Plaintiffs claim for intentional interference should be dismissed because Plaintiffs claim does not allege the existence of an economic relationship between the Plaintiff and another, containing a probable future economic benefit or advantage to Plaintiff. Again, Defendant overlooks the obvious. Plaintiffs amended complaint at page 7, paragraph 25, specifically alleges that: PLAINTIFF'S MEMORANDUM IN OPPOSITON TO DEFENDANT'S MOTION TO DISMISS AND FOR PARTIAL SUMMARY JUDGEMENT PAGE 6 OF 13 Case: 4:04-cv-01304-RWS Doc. #: 85 Filed: 06/10/05 Page: 6 of 13 PageID #: 624 SeeBeyond has also directly interfered with Claredi 's outside sales arrangements, representing to several customers that SeeBeyond is no longer working with Claredi and in the future SeeBeyond is not going to be using either the modified Grandfather System or the Integrated Product for HIPAA transaction compliance testing, but that SeeBeyond will be delivering its new superior HIPAA transaction compliance testing program to its current customers free of charge as part of its larger system suite. Additionally, paragraph 26 specifically alleges that in the summer of 2004 C1aredi 10st at 1east five Faci1edi sales because of SeeBeyond's request that customers not buy Faci1edi and by offering free RIP AA transaction compliance testing software instead. Under California Law the tort of interference with a prospective economic advantage does not require interference with a re1ationship that has ripened into a contract, but the 1aw mere1y requires interference with one which has that potential. It is a question of fact whether the business re1ationship between the P1aintiff and third party is sufficient to support the tort. See Tri-Growth Ctr. City v. Silldorf, Burdman, Duignan & Eisenberg, 216 Cal. App. 3d 1139, 1154 (1989). Claims Eight, Nine and Ten: Contract Issues Defendants interference witlt numerous contracts not its own 8. Defendant asserts that P1aintiffs c1aims eight, nine, and ten: contract Issues shou1d be dismissed because the damages P1aintiff seeks relate to a conspiracy on the part of Defendants Edifecs and SeeBeyond to interfere with the Agreement between P1aintiff and SeeBeyond. SeeBeyond, again, chooses to overlook the obvious. All three c1aims seek damages of and from Defendants for all damages suffered by the P1aintiff, inc1uding damages resulting from the interference with various agreements. In any event, joint tortfeasors and conspirators are jointIy and severally responsib1e for the resulting damages. The torts Defendant alleged1y conspired to commit indude misappropriation of PLAINTIFF'S MEMORANDUM IN OPPOSITON TO DEFENDANT'S MOTION TO DISMISS AND FOR PARTIAL SUMMARY JUDGEMENT PAGE 7 OF 13 Case: 4:04-cv-01304-RWS Doc. #: 85 Filed: 06/10/05 Page: 7 of 13 PageID #: 625 trade secrets, violation of the California Unfair Practices Act, and conversion. See, The People v. First Fed. Credit Corp., 104 Cal. App. 4th 721, 734 (2003). B. MOTION FOR PARTIAL SUMMARY JUDGMENT Limitation of damages prohibited by California statute and publie poliey 9. Defendant SeeBeyond requests the Comt to detennine as a matter of law that Plaintiffs damages are limited to $14,400.00. The grounds for this request are that: (1) contractual language, arguably, limits SeeBeyond's liability to Claredi; and (2) that California law authorizes such limitations. The contractual language relied upon by SeeBeyond provides as follows: 7.3 Limitation of Damages and Liability. NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOSS OR ANTICIPATED PROFITS, BENEFITS, E VEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. "EXCEPT FOR DAMAGES DUE TO BREACH OF THE OBILIGATIONS UNDER SECTION 4, 6, 8 AND/OR 11.7 (FOR CLAREDI ONLY) , EACH PARTY'S AGGREGATE LIABILTY TO THE OTHER FOR ALL LOSS AND DAMAGE WHETHER IN NEGLIGENCE, CONTRACT OR OTHERWISE, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT SHALL IN ANY EVENT BE LIMITED SO THAT SEEBEYOND WOULD BE LIABLE TO PAY CLAREDI NO MORE THAN THE SUM OF THE MONIES PAID TO SEEBEYOND BY CLAREDI UNDER THIS AGREEMENT AND SO THAT CLAREDI WOULD BE LIABLE TO PAY SEEBEYOND NO MORE THAN THE SUM OF THE MONIES PAID TO CLAREDI BY SEEBEYOND UNDER THIS AGREEMENT. (emphasis added) 10. Defendant misstates California Law. Defendant neglects to mention that contractual liability limitations in California routinely fail where prohibited by statute or mn contrary to public policy. This is the case even where sophisticated commercial parties are involved. California law contains at least two statutes outlining circumstances PLAINTIFF'S MEMORANDUM IN OPPOSITON TO DEFENDANT'S MOnON TO DISMISS AND FOR PARTIAL SUMMARY JUDGEMENT PAGE 8 OF 13 Case: 4:04-cv-01304-RWS Doc. #: 85 Filed: 06/10/05 Page: 8 of 13 PageID #: 626 under which contractuallimitations will not be upheld. The first is California Civil Code § 1668 which makes certain contracts unlawful. Those incIude: CERTAIN CONTRACTS UNLAWFUL. All contracts which havelor their object, directly or indirectly, to exempt anyone Irom responsibility lor his own Iraud, or willful injury to the person or property 01 another, or violation oIlaw, whether willful or negligent, are against the policy 01 the law. (emphasis added) In the case at hand, Plaintiff in addition to its breach of contract claim has alleged trademark infringement, conversion, misappropriation of trade secrets, unfair competition, intentional interference with prospective advantage, intentional interference with contract, inducing breach of contract, and conspiracy. All of these are tort claims that involve willful injury to the property of another and violation of the law. The attached Declaration of Dr. Kepa Zubeldia attached to Plaintiff s Statement of Material Fact at Issue outlines facts supporting these claim. California courts have interpreted the statute to make agreements to limit liability for intentional torts invalid, including intentional interference with prospective business advantage. See, McQuirk v Donnelly, 189 F.3d 793, 796 (9th Cir. 1999). It is interesting to note that the contract language relied on by Defendant does not reference torts. One might ask if a contract purporting to limit liability for an intentional tort is void under California law, permitting recovery under quantum meruit. In addition, the California Unfair Practices Act specifically provides for the recovery of damages for violation of its provisions at § 17082 as follows: In any action under this chapter, it is not necessary to allege or prove actual damages or the threat thereof, or actual injury or the thereof, to the plaintiff. But in addition to injunctive relief, any plaintijJ in any such action shall be entitled to recover three times the amount 01 actual damages, if any, sustained by the plaintijJ, as well as three times the actual PLAINTlFF'S MEMORANDUM IN OPPOSITON TO DEFENDANT'S MOnON TO DISMISS AND FOR PARTlAL SUMMARY JUDGEMENT PAGE 9 OF 13 Case: 4:04-cv-01304-RWS Doc. #: 85 Filed: 06/10/05 Page: 9 of 13 PageID #: 627 damages, if any, sustained by any person who has assígned to the plaintiff hís claím lor damages resulting from a violatíon of thís chapter. In any action under this chapter in which judgment ís entered against the defendant the plaintiff shall be awarded a reasonable attorney's lee together with the costs of suit. Allowing wrongdoers to contractually limit this liability would defeat the announced purposes ofthis Act, which is stated at §§ 17001 and 17002. § 17001 states that: The Legislature declares that the purpose of this chapter is to safeguard the public against the creation or perpetuation of monopolies and to foster and encourage competition, by prohibiting unfair, dishonest, deceptive, destructive, fraudulent and discriminatory practices by which fair and honest competition is destroyed or prevented. § 17002 states that: This chapter shall be liberally construed that its beneficial purposes may be subserved. (emphasis added) The second California Statute provides that a damage limitation relating to the sale of goods does not apply where a remedy fails of an essential purpose. The California Commercial Code at § 2719(2) and (3) provides that: "(2) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in this codeo (3) Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. " (emphasis added) Remedies provided for under the California Commercial Code include § 2708. Seller's damages for non-acceptance or repudiation, that provides in subsection (2): 1f the measure of damages provided in subdivision (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the huyer, together with any incidental damages provided in this division (Section 2710), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale. PLAINTlFF'S MEMORANDUM IN OPPOSITON TO DEFENDANT'S MOTlON TO DlSMISS AND FOR PARTlAL SUMMARY JUDGEMENT PAGE 10 OF 13 Case: 4:04-cv-01304-RWS Doc. #: 85 Filed: 06/10/05 Page: 10 of 13 PageID #: 628 Courts app1ying this Statute have readi1y expunged contractua1limitations of 1iability in commercia1 settings where the facts warrant. See, RRX Ind. v. Lab-Con" 772 F.2d 543 (9th Cir. 1985). The court in RRX Industries, in setting aside the limitation clause, stated that: [eJach case must stand on its ownfacts. S.M. Wilson, 587 F. 2d at 1378, quoted in Fiorito, 747 F.2d at 1314. The facts here justify the resulto Neither bad faith nor procedural unconscionability is necessary under California Commercial Code §2719(2). It provides an independent limit when circumstances render a damages limitation clause oppressive and invalid. See Fiorito, 747 F 2d. at 1314 - 15. The award of consequential damages was proper. See In re Mesa Bus. Equip. Debtor. Mesa Bus.Equip., V. Ultimate S. Cal., Inc .. 931 F2d.60, 1991 WL 66272 (9th Cir.1991) unpublished. Obviously, damage to reputation may well be recoverab1e under a number oftheories. C. REQUEST FOR ADDITIONAL TIME TO SUPPLEMENT OPPOSITION In accordance with FED. RULECIv. PRO. 56(f), C1aredi seeks an order allowing C1aredi at least 120 days in additional time to file a supplemental response to SeeBeyond's motion for partial summary judgment so that Claredi can take the depositions of the witnesses identified in the Declaration of H. N. Cunningham III attached hereto as Appendix A. The additiona1 time requested will allow C1aredi to ensure the recently added Defendant, Edifecs, lnc. appears in this matter so as to allow all the parties to participate in the requested depositions. The additiona1 time is a1so needed to coordinate the schedule s of the multitude of counsel Defendant SeeBeyond with that of the P1aintiff s counsel. In addition, at least two of the witnesses identified herein are no longer employed by the Defendants, and C1aredi has been informed it will have to subpoena these witnesses to secure their deposition. Finally these witnesses are located PLAINTIFF'S MEMORANDUM IN OPPOSITON TO DEFENDANT'S MOTION TO DISMISS AND FOR PARTlAL SUMMARY JUDGEMENT PAGE 11 OF 13 Case: 4:04-cv-01304-RWS Doc. #: 85 Filed: 06/10/05 Page: 11 of 13 PageID #: 629 in various cities throughout the United States, and travel arrangements must be taken into consideration in coordinating these depositions. The requested extension will not delay the trial of this matter as trial is not set until October 10, 2006. AdditionalIy the discovery deadline in this matter is not until May 19, 2006. The deadline for filing motions to dismiss or motions for summary judgment is not until June 1, 2006, with opposition briefs allowed to be filed up to July 3, 2006. Claredi needs to be provided the discovery addressed in the attached declaration to demonstrate the nature of the wrongdoing for which SeeBeyond is seeking to escape liability under its claim that the acts of SeeBeyond at issue are protected by the contractuallimitation of liability clause in the parties' agreement. This wilI alIow Claredi to demonstrate that the acts of wrongdoing complained of by Claredi in. this matter are the types of acts which, under California law, require the contractual limitation of liability clause in the agreement to be declared unenforceable. WHEREFORE, Plaintiff respectfulIy request the Motion of Defendant SeeBeyond Technology to Dismiss First Amended Complaint and for Summary Judgment be denied. RespectfulIy Submitted, ROBERTS, CUNNINGHAM & STRIPLING, LLP By: /s/ R.N. Cunningham, III Texas Bar Number: 05246900 800 Preston Commons West 8117 Preston Road DalIas, Texas 75225 (214) 696-3200 (214) 696-5971 facsimile PLAINTIFF'S MEMORANDUM IN OPPOSITON TO DEFENDANT'S MOTlON TO DISMISS AND FOR PARTIAL SUMMARY JUDGEMENT PAGE 12 OF 13 Case: 4:04-cv-01304-RWS Doc. #: 85 Filed: 06/10/05 Page: 12 of 13 PageID #: 630 BLACKWELLSANDERS PEPER MARTIN LLP Michael A. Clithero, #2829 720 Olive Street, Suite 2400 S1.Louis, Missouri 6310 1 (314) 345-6000 (314) 345-6060 facsimile ATTORNEYS FOR PLAINTIFF CLAREDI CORPORATION PLAlNTIFF'S MEMORANDUM IN OPPOSITON TO DEFENDANT'S MOnON TO DISMISS AND FOR PARTIAL SUMMARY JUDGEMENT PAGE 13 OF 13 Case: 4:04-cv-01304-RWS Doc. #: 85 Filed: 06/10/05 Page: 13 of 13 PageID #: 631